There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at SiteOne Landscape Supply (NYSE:SITE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for SiteOne Landscape Supply, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.089 = US$222m ÷ (US$3.1b - US$649m) (Based on the trailing twelve months to September 2024).

Therefore, SiteOne Landscape Supply has an ROCE of 8.9%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 12%.

View our latest analysis for SiteOne Landscape Supply

Above you can see how the current ROCE for SiteOne Landscape Supply compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for SiteOne Landscape Supply .

What Can We Tell From SiteOne Landscape Supply's ROCE Trend?

The returns on capital haven't changed much for SiteOne Landscape Supply in recent years. Over the past five years, ROCE has remained relatively flat at around 8.9% and the business has deployed 114% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On SiteOne Landscape Supply's ROCE

In conclusion, SiteOne Landscape Supply has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 45% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you're still interested in SiteOne Landscape Supply it's worth checking out our FREE intrinsic value approximation for SITE to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.